Could clusters close the Ontario-Netherlands prosperity gap?

July 20, 2016

The Institute is developing a new list of peers – the first refresh since 2001. Peers are regions similar to Ontario, and are used to benchmark Ontario’s performance and inform policy choices. A revised peer list will reflect updated economic realities, and emphasize comparability with Ontario. Ultimately, we will compare Ontario to 10 jurisdictions including provinces, US states, and countries.

In this blog, we introduce one of Ontario's new peers- the Netherlands. Despite the fact that the Netherlands is a country and Ontario is a province, similarities in population size and industrial composition make the two more comparable than Ontario and many subnational regions.

Ontarians and the Dutch are similar, sort of…

With a population of 16.9 million, and financial and professional services accounting for 36 percentof the economy, the Netherlands is the OECD region most closely resembling Ontario.[1] Despite these similarities, the Netherlands is more prosperous in terms of GDP per capita. In 2002, Dutch workers produced 1.1 percent more than Ontarians. This prosperity gap has grown over time—by 2013, the Dutch were producing 10.6 percent more than Ontarians.

The Institute selected peers with similar industrial compositions, population size, and basic education levels to Ontario. Given these criteria, the prosperity gap between Ontario and the Netherlands is less likely to be the result of underlying demographic or industrial differences, and more likely the result of economic policy choice.

So, what caused the gap?

Ontario and the Netherlands enacted a multitude of policies between 2001 and 2013, which likely contributed to this divergence. In one particular example, the Netherlands’ implemented a targeted cluster policy—Peaks in the Delta—in 2004. Nationally implemented, this regional policy was designed to channel resources away from low-growth to high-growth regions. This policy targeted strong, existing clusters,a key recommendation in our working paper, Clusters in Ontario.

Following its implementation, several of the sectors containing targeted clusters experienced dramatic growth ingross value added (Exhibit 2).[2] Tourism for instance, grew 134 percent in its related sector between 2004 and 2012, relative to 99 percent growth between 1993 and 2003. The sectors containing energy, knowledge intensive services, and health clusters grew by 93, 70, and 45 percent, respectively.[3] This was well above the median sector growth of 14 percent during the same period. Peaksincreased cooperation between actors within specific clusters, fostering synergies that furthered cluster growth and productivity.

Between 2000 and 2013, the Netherlands achieved stronger economic growth than Ontario, particularly in targeted-cluster related sectors. The Ontario government provides resources for clusters, but lacks an overall clear and integrated cluster strategy. As such, the Netherlands serves as a useful case study for prosperity enhancing policies to implement within Ontario. Policies implemented in the Netherlands may be especially informative for Ontario, given industrial and demographic similarities between the two regions.

In Clusters in Ontario: Creating an ecosystem for prosperity, we suggest allowing clusters to grow organically by developing a supportive environment in which they can succeed. By channeling funds to existing strong clusters, Ontario can stimulate provincial-scale economic growth—an approach taken and done successfully at the national level in the Netherlands.

For more information on Ontario’s clusters, and how to improve prosperity, check out our Working Paper, Clusters in Ontario and our blog post Cluster policy 101: Don’t force it.

[1] Institute for Competitiveness & Prosperity analysis based on data from Eurostat

[2] The Netherlands defined clusters and their related sectors using the European NACE classifications. This differs from the NAICS classification system used in North America, and our most recent working paper, Clusters in Ontario.

[3] Institute for Competitiveness & Prosperity analysis based on data from Eurostat